Published by Manoj Kumar

11 Strategic Challenges towards Digital Transformation

The world of business is continuously changing, thanks to digital technologies like artificial intelligence, machine learning, internet of things, social networks etc. – that are disrupting industry after industry at a break neck pace. The old ways of doing things are changing radically. The incumbents are failing to keep abreast and are losing their competitive advantages to the new age digital disruptors. Many industries have right now, entered the age of digital transformation – left with the option to either transform or die.

However, there are a few strategic challenges to Digital Transformation that incumbents as well as the new age digital disruptors are finding equally difficult to cope with –

Merging boundaries – Verizon acquired Yahoo. What has a telecom company to do with a media and entertainment firm? Another example – Google acquired nest (thermostat, smoke detector, and alarm system hardware) – Doesn’t it look like a firm invested deep into operating systems, search engines and analytics platforms is jay walking into strange territory? – or is it their quest towards smart home? There is an underlying digital disruption that is challenging the traditional industry definitions and creating newer ones at the edge or intersection of industry boundaries. That explains the irony – Uber, having the world’s biggest fleet of cars doesn’t own a car, and Airbnb having the highest inventory for rented accommodation doesn’t own a single apartment. To top it all Uber and Airbnb are classified into High Tech industry, by many analysts.

Match between unlikely partners – If we analyze the next big thing in automotive industry – connected vehicles. We see that, to get the connected cars running smoothly, we need to visualize collaboration between so many seemingly disconnected industries. Automotive companies to supply cars, high tech and telecom companies to provide connectivity and cloud platforms, insurance companies to perform continuous monitoring of driving patterns to ascertain their charges, the government to provide de-congested roads and automated toll collection systems etc.

My ship is too big to sink – There are certain industries that are running for as long as 100 years without much change e.g. education industry. A new age digital disruptor might think to fundamentally redesign the pedagogy or delivery mechanism, but the amount of resistance and pushback might be unimaginable. “We don’t need no Thought control. Hey teachers! leave them kids alone”, will sound nothing less than blasphemous.

Can’t fathom this inscrutable platform – Another major source of disruption has been the emergence of industry wide technology platforms (that act as central platform between the participating service providers and the customers). This leaves profound impact on participants who get involved in complex interdependence – where at one hand they are competing for business and the other hand collaborating among themselves. One fictitious example can be a smart healthcare platform – where a local healthcare center passes on the past medication history of a patient and a specialized healthcare provider passes on the data around liver and biliary problems that patient suffered a couple of months back and another local gym passes on the vital stats for his past 1-month workout sessions. All this gets churned into a co-operative platform that will inform the local health center about an immediate hospitalization need this person requires because of some alarm raised by its data mining algorithm.

How big is this big data – While the managers seem to be convinced about underlying business opportunities hidden in big data- They find it hard to ascertain the value it holds for their customers and partners. Further, many strategic questions come up – whether to go in-house or use third party? What model to adopt for sharing data between own departments, partners and competitors? How much will they co-operate?

The collective power of the customers – Customers today are gaining great negotiation power because of the customer networks and sharing economy powered by underlying digital support system. A digitally savvy customer is searching and buying, downloading, streaming, accessing, connecting, doing peer reviews, and so on. To counter this growing power companies, need to connect in the best way possible: directly, via platforms, in aggregated marketplaces, via connected objects, products, and services, and so on.

The big shift “From products to services” – The business models are being redesigned to put consumers and the value extracted by them at the center. Be it the example of “lighting as a service” from Philips, “mobility as a service” from uber, or software as a service from software vendors. Shift is more towards usage rather than ownership, with low entry and exit barriers, primarily focused on user experience and retention – we see the entire model shifting from transaction based to relationship based.

Save me from this flux – A common observation across industries is that, there is a constant flux that is fueled by digital technologies, that disrupts established power equations in the industry by either introducing or removing the intermediaries. How this digital disruption has affected some industries is by re-intermediation – bringing an aggregator or intermediary between the producers and the consumers (e.g. online travel booking agents coming as an intermediary and dwindling the counter sales for the hotels/airlines) and by dis-intermediation – removing any intermediaries between the producers and consumers ( Amazons and Walmarts edging out the middlemen by providing a technology platforms to connect the supplier and the buyer directly or by using internet enabled supply chain innovations, or, blockchain based currencies muzzling out so many intermediaries from the financial world ). Considering the potential of digital disruption, there are myriad other ways an industry can observe a flux.

Scale this Sorcery – A manager of some company conducted a pilot or a proof of concept involving artificial intelligence, internet of things and a mobile app, with a potential application in advertising for their products. How can he scale it up to be used in the next super bowl campaign? What part of it he can let go and what he can scale up to reimagine his companies’ offerings, so that this can become a sustainable source of revenue for them?

Beating the Goliath – The single largest challenge that looms around the digital disruption/ innovation is – managing politics and institutions. Without gaining support from policy makers and lobbying to influence decisions that support business as well as the rights of other parties any new development might fall into pit. Policies around data usage, sharing, security, intellectual properties, privacy and many more, needs to be well defined and favoring all.

Organizational shift – Sailing through a disruption requires deep rooted organizational and cultural changes and an executive sponsorship from no one less than the CEO. A culture supporting experimentation and customer centric thought process, an organization built upon agile methodologies and risk-taking individuals and a leadership to embrace change and uncertainty will form an ideal ship to look straight into the eye of the storm.

Many of the above challenges might sound similar and could be bucketed together. My attempt here has not been to create an exhaustive list, but one good enough to let a manager see through some challenges of digital transformation.